Quick Recap: The Fed is now in play for a September hike after the solid non-farm payrolls print for July of 215,000 was released on Friday night. That worried stock traders a little and saw the US interest rate curve flatten as 2-year bonds sold off and 10-years rallied.
Indeed, all the stock markets we watch across North America and Europe were lower with the Dow down for the seventh session in a row and the S&P 500 closing at its lowest level in a month. After the shellacking the local market took Friday with the banks under pressure, that doesn’t bode well for trade today. Likely Chinese trade data (big fall in exports) over the weekend will also weigh as will talk in the financial media about the imminent announcement by the CBA of a big capital raise.
Elsewhere, oil got hammered again with the front Nymex contract under $44, gold is up a smidge, and base metals are lower again. None of that hurt the Aussie dollar though and it has climbed back above 74 cents and it’s higher against the yen, euro and sterling.
The overnight scoreboard (6.15am AEST):
- Dow Jones -0.27% to 17,373
- Nasdaq -0.26% to 5,043
- S&P 500 -0.29% to 2,077
- London (FTSE 100) -0.42% to 6,718
- Frankfurt (DAX) -0.81% to 11,490
- Tokyo (Nikkei) +0.29% to 20,772
- Shanghai (composite) +2.26% to 3,744
- Hong Kong (Hang Seng) +0.73% to 24,552
- ASX Futures overnight (SPI September) -2 5,398
- AUDUSD: 0.7408
- EURUSD: 1.0969
- USDJPY: 124.15
- GBPUSD: 1.54995
- USDCAD: 1.3119
- Crude: $43.87
- Gold: $1,092
- Dalian Iron Ore (September): 422.5
– Now the news. That the data was divergent since traders went home on Friday in Australia is an understatement. Friday saw another solid print for US non-farm payrolls, which printed +215,000 in July. June jobs were revised up by 8,000 and the unemployment rate was steady at 5.3%. As BI US’s Akin Oyedele wrote, the Fed is now in control and this data gives it cover to move interest rates in September.
Data released in China over the weekend, however, might worry some traders today and tonight given the recent focus on Chinese growth, or lack thereof. Saturday’s release of trade data for July simply reinforced this notion that the official figures are not capturing the economic slowdown, with the trade data showing that exports dropped 8.3% year on year against the expectation of just a 1% fall. That’s a big dip from the +2.8% year on year print in June. Imports were down 8.1% against the market’s 8.0% expectation. That saw the trade surplus narrow from US$46.54 billion to US$43.03 billion. Elsewhere producer prices continued to dip, down 5.4%, but the CPI was 1.6% higher.
– Looking at stocks and the S&P 500, while the non-farms didn’t exactly cause carnage, the fact that the Fed has less reason to do nothing at its next meeting next month means traders are likely to start to fret over the impact this might have. Upward momentum has slowed in the S&P 500 which is no higher now than it was last December.
Likewise a tweet from Cincinnati-based portfolio manager and market strategist Ryan Derrick highlights that there are 120 (24%) of S&P 500 constituent firms which are down more than 20% from their highs. Likewise, his data shows the average stock is 14.5% off its high. You might call that a stealth bear market.
– Locally it was a terrible day’s trade on Friday, with the ANZ down an incredible 7.5% but both Westpac and the CBA were down more than 3% to follow their falls of more than 3% the day before. That helped drag the index down 2.41% and has brought it back toward the bottom of the trend channel which stretches back to the beginning of 2012.
Traders will respect that line as support. But they will still be watching to see if it breaks. This week’s updates from the NAB and CBA, amongst other reports, are crucial.
– In China on Friday, Shanghai stocks leapt more than 2% higher on the back of more hope for stimulus. The Shanghai Securities News reported that there is 1 trillion yuan of fund manager money sitting on the sidelines as “ammunition” to be deployed into the market should the need arise. This news followed reports yesterday of a 2 trillion yuan package being sought by the China Securities Finance Corp in addition to money already advanced from authorities.
– On commodity markets, base metals were down by around 1.3% on average on the LME, Commsec’s Craig James reports. Gold managed to rally, Dr Copper remains pressure and iron ore was steady. But it was crude oil, which made a new low for this run, which was the big mover with James saying it “fell on continued bearish signals”. Nymex was down 1.8% to finish at $43.87 a barrel. That’s a new post-2009 low.
– On interest rate markets, the curve in the US flattened. It seems due to non-farms suggesting a tightening, but the subdued wages growth suggested a muted one. Westpac’s New Zealand-based strategist Imre Speizer said this morning “US 2yr treasury yields rose from 0.69% to 0.75% in response to the payrolls report, closing at 0.72%, while the 10yr fell from 2.24% to 2.16%. The curve flattened 8bp to a three-month low. Fed funds futures yields for the September meeting rose 1bp and currently imply slightly more than a 50% chance of a 25bp hike then. Australian 3yr government bond (futures) yields fell from 2.01% to 1.98%, while the 10yr yield fell from 2.88% to 2.78%, flattening the curve.”
– On the data front today, it’s quiet in Australia while in Japan we get the release of the BoJ economic survey and consumer confidence. Tonight we get a speech from Dennis Lockhart, president of the Atlanta Fed. Markets will be hanghing on what he says about interest rates.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Cochlear – Keeping a Technical Ear to the Ground
Cochlear reports its full year results tomorrow. Analysts are expecting a big bounce back in earnings after the product woes of previous years. Net profit is expected to jump from $110 million to above $160 million for 2015 on the back of a market share recovery and a lower AUD. So the result should push the shares higher, right?
Chart says no.
The price has failed once again at the all-time highs around $93. The daily MACD is crossing, well above the zero line, giving a clear sell signal. This combination is flagging a pull back, possibly to around $78.
This is not necessarily in conflict with the fundamentals. The problem for Cochlear shareholders is anticipation – a 20% + rise over the last month. Now trading at 26-30x earnings (depending on who’s your favourite analyst) all the good news could be in the price. The market has bought the rumour, and the chart says it’s about to sell the fact.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC